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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) January 3, 1997
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TELECOMM INDUSTRIES CORP.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-4410 34-1765902
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(Commission File Number) (I.R.S. Employer Identification No.)
9310 Progress Parkway, Mentor, Ohio 44060
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(Address of Principal Executive Offices) (Zip Code)
(216) 953-1400
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
Exhibit Index at Sequential Page 4
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Telecomm Industries Corp.
Form 8-K
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 3, 1997, the Registrant acquired Northeastern Communications
Systems, Inc. ("NCS"), a privately-held Wisconsin corporation engaged in the
distribution of voice and data communications systems through offices in four
cities in Wisconsin. The acquisition was accomplished through a merger of
NCS into the Registrant. The consideration paid by the Registrant was
comprised of (a) $400,000 in cash, (b) 400,000 shares of the Registrant's
common stock, par value $.01 per share (the "Common Stock"), and (c) the
payment by the Registrant of $250,000 of liabilities of NCS. The shares of
the Common Stock were not registered under the Securities Act of 1933, as
amended (the "Act") and were issued to two stockholders of NCS in a
transaction exempt from the registration requirements of the Act. The
certificates representing the shares of Common Stock contain a legend
restricting transfer without compliance with the Act. The source of $400,000
of the cash portion of the consideration was a term loan from Peoples Bank,
N.A., Mentor, Ohio, payable in December 2000, with interest at an annual rate
equal to .5% in excess of the prime rate in effect from time to time. The loan
is secured by a lien on all of the Registrant's assets. The $250,000 used to
pay certain liabilities of NCS was obtained through the payment to the
Registrant of amounts owed by the purchaser of the assets of a former subsidiary
of the Registrant, Telephone Communications, Inc., that was sold on December 31,
1994, to a company owned by Raymond W. Sheets, Jr, and Steven W. Smith,
directors of the Registrant. The consideration paid in the merger was
determined by negotiation between the Registrant and NCS, based in part on
the trading price of the Registrant's Common Stock. Peter Olk, the holder of
89.75% of the shares of NCS, has been employed by the Registrant as Area Vice
President and is expected to be appointed to the Board of Directors of the
Registrant.
On January 3, 1997, the Registrant also acquired Long-Tell
Communications, Inc. ("LTI"), an Ohio corporation engaged in long distance
telephone services. This acquisition was accomplished by a merger of LTI into
the Registrant. The consideration paid by the Registrant was comprised of
(a) $25,000 in cash, (b) 112,500 shares of Common Stock and (c) a promissory
note of the Registrant in the principal amount of $200,000, bearing interest
at 9% per annum payable in monthly installments of interest only, with the
principal payable on January 3, 2002. The promissory note is unsecured and
subordinate to all future borrowings by the Registrant. The shares of Common
Stock were not registered under the Act and were issued to one of the two
stockholders of LTI in a transaction exempt from the registration
requirements of the Act, and the certificates representing the shares contain
a legend restricting transfer without compliance with the Act. Michael J.
Toth, then Chairman of the Board and Chief Executive Officer and a director
of the Registrant, held 50% of the shares of LTI and received the $25,000 in
cash and the $200,000 promissory note from the Registrant. The terms of the
LTI acquisition were reviewed and approved by a committee consisting of the
four directors of the Registrant other than Mr. Toth. The committee received
a valuation of LTI from an independent certified public accountant and
considered the business advantages to the Registrant of the acquisition and
the consideration paid by the Registrant. The consideration was determined
by negotiation and the amount and method of determination were approved by
the committee of disinterested directors. The Registrant believes that the
terms of the LTI acquisition are at least as favorable to the Registrant as
those which could have been obtained from unrelated parties. The acquisition
of LTI did not involve
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the acquisition of a "significant amount of assets", as defined in Instruction 4
to Item 2 of Form 8-K, but is being reported by the Registrant because of Mr.
Toth's ownership of 50% of the stock of LTI.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
(a) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED.
Audited financial statements of Northeastern Communications
Systems, Inc. for the year ended December 31, 1996 will be
filed not later than 60 days following the filing of this
Report.
(b) PRO FORMA FINANCIAL INFORMATION..
Pro Forma financial statements of the Registrant showing the
effect of the acquisition of Northeastern Communications
Systems, Inc. will be filed not later than 60 days following
the filing of this Report.
(c) EXHIBITS.
2.1. Merger Agreement, dated as of January 1, 1997, by and
among Peter Olk and Thomas Raasch, Northeastern Communications
Systems, Inc. and Telecomm Industries Corp.
2.2. Addendum to Merger Agreement, dated January 3, 1997, by
and among Peter Olk and Thomas Raasch, Northeastern
Communications Systems, Inc. and Telecomm Industries Corp.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TELECOMM INDUSTRIES CORP.
(Registrant)
Date: January 15, 1997 By:/s/ James M. Lowery
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(Signature)
James M. Lowery
President
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EXHIBIT INDEX
Telecomm Industries Corp.
Form 8-K
Exhibits
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Merger Agreement
Addendum to Merger Agreement
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MERGER AGREEMENT
THIS MERGER AGREEMENT ("Agreement") is entered into as of the 1st day
of January, 1997, by and among PETER OLK AND THOMAS RAASCH (collectively, the
"Shareholders" and individually, a "Shareholder"), NORTHEASTERN COMMUNICATIONS
SYSTEMS, INC., a Wisconsin corporation ("NCS"), and TELECOMM INDUSTRIES CORP.,
a Delaware corporation ("Telecomm".)
).
RECITALS:
A. All of the issued and outstanding shares of capital stock of NCS
(collectively, the "NCS Shares") are owned by the Shareholders and Ms. Sandra
Perillo ("Perillo") as set forth in paragraph 1.2.2; and
B. The Board of Directors and 94.875% of all the Shareholders of NCS desire
that NCS merge with Telecomm pursuant to the terms and conditions of this
Agreement and the Board of Directors and 94.875% of the Shareholders of NCS
further believe that it is in the best interest of NCS and, the Shareholders of
NCS, that such merger be affected by delivery of Four Hundred Thousand Dollars
($400,000) in cash and Four Hundred Thousand (400,000) shares of common stock of
Telecomm, par value $.01 per share (the "Telecomm Shares"), to be distributed
among NCS's Shareholders and Perillo (the "Merger Consideration"), in addition
to Telecomm's assumption of NCS liabilities as otherwise set forth in this
Agreement; and
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and other good and valuable consideration, the receipt, adequacy and sufficiency
of which are acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 ADOPTION OF PLAN OF MERGER. NCS has taken all requisite corporate
action prior to the date hereof for the purposes of adopting and approving this
Agreement pursuant to Section 1701.78 of the Ohio General Corporation Law and
Section 180.1101 et. seq. of the Wisconsin Business Corporation Law. Telecomm
has taken all requisite corporate action prior to date of this Agreement
necessary to adopt and approve this Agreement in accordance with Delaware
Corporation Law. Upon execution of this Agreement, Telecomm and NCS shall cause
a Certificate of Merger pursuant to this Agreement to be filed with the
Secretary of State of Delaware, and shall cause to be filed such certificates,
documents or instruments as are required to be filed in the States of Ohio and
Wisconsin
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under the laws of that state in order to effectuate the transactions
contemplated by this Agreement.
1.2 TERMS OF MERGER; CONVERSION OF NCS SHARES.
1.2.1 GENERAL. NCS shall be merged with and into Telecomm effective
as of January 1, 1997 (the "Merger"), and the separate corporate existence of
NCS shall thereupon cease. The Articles of Incorporation and Code of Regulations
of Telecomm as in effect on the Closing Date shall remain in full force and
effect. The Merger Consideration shall be payable on January 3, 1997.
1.2.2 CONVERSION OF NCS SHARES. The NCS Shares shall be exchanged as a
result of the Merger for the Telecomm Shares. Telecomm shall deliver to each
Shareholder and Perillo at the Closing and/or within a reasonable time
thereafter, a share certificate evidencing ownership of Telecomm Shares, as set
forth in the table below, upon surrender to Telecomm of the share certificate or
certificates representing such Shareholder's and Perillo's ownership of NCS
Shares duly endorsed for transfer or accompanied by properly executed stock
powers.
SHAREHOLDER SHARES OWNED IN NCS PERCENTAGE OF
- ----------- ------------------- -------------
OWNERSHIP
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Peter Olk 1,750 89.75
Thomas Raasch 100 5.125
Sandra Perillo 100 5.125
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TOTAL 1,950 100
TELECOMM SHARES
- ---------------
Peter Olk 359,000
Thomas Raasch 20,500
Sandra Perillo 20,500
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TOTAL 400,000
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1.2.3 DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, NCS Shares outstanding immediately prior to the Merger Date and
held by Sandra Perillo, who did not vote in favor of the Merger and who complies
with all of the relevant provisions of Section 180.1301, et seq. of the
Wisconsin Business Corporation Law (the "Dissenting Shares") shall not be
converted into the right to receive the Merger Consideration, unless and until
she shall have failed to perfect or shall have effectively withdrawn or lost her
rights to appraisal. If, after the Merger Date, she fails to perfect or
withdraw or otherwise loses such right, each of her Shares shall thereupon be
deemed to have been converted into the right to receive, as of the Merger Date
her portion of the Merger Consideration without any interest thereon. NCS shall
give Telecomm notice of any demands received by NCS for appraisal of Shares, and
Telecomm shall have the right to participate in all negotiations and proceedings
with respect to such demands. Prior to the Merger Date, NCS shall not, except
with the prior written consent of Telecomm, make any payment with respect to, or
settle or offer to settle, and such demands. The delivery of the Telecomm
Shares due Sandra Perillo along with her percentage of the cash proceeds shall
be held by Telecomm until such time as the delivery of the said Telecomm Shares
and cash is required by Wisconsin Law to be paid to Perillo.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS AND THE NCS
2.1 REPRESENTATIONS OF EACH SHAREHOLDER. Each Shareholder represents and
warrants to Telecomm as follows:
2.1.1 TITLE. Each Shareholder owns beneficially and of record, and has
full power and authority to vote and transfer, free and clear of any claims,
liens or encumbrances, the NCS Shares shown above. The NCS Shares set forth on
adjacent to such Shareholder's name constitute all of the NCS Shares owned by
such Shareholder.
2.1.2 AUTHORITY.
(a) Such Shareholder has the full legal right, power and authority to
enter into, execute and deliver this Agreement and to perform such Shareholder's
obligations hereunder.
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(b) This Agreement has been duly executed and delivered by such
Shareholder and is the valid and binding obligation of such Shareholder
enforceable in accordance with its terms.
(c) The execution and delivery of this Agreement and the
consummation by such Shareholder of the transactions contemplated by this
Agreement will not (i) require the further approval or consent of any federal,
state, county or local court or other governmental or regulatory body or the
approval or consent of any other person; or (ii) conflict with or result in a
breach or violation of any of the terms and conditions of, or constitute (with
notice, lapse of time or both) a default under or a violation of, any statute,
regulation, order, judgment or decree applicable to any such Shareholder or any
instrument, contract or other agreement to which such Shareholder is a party.
2.1.3 NCS LIABILITIES. EXHIBIT "A" sets forth those certain
liabilities which Telecomm has agreed to pay from the Two Hundred Fifty Thousand
Dollars ($250,000) to be escrowed as part of the consideration of this
transaction. These liabilities are categorized as liabilities not incurred in
the normal course of business and include as an example all obligations due from
NCS to its past and present shareholders and current and past litigation claims.
EXHIBIT "A-1" will set forth as of the Merger Date those other obligations of
the NCS incurred in the ordinary course of business and which remain due and
owing as of the Merger Date. Where exact amounts of these liabilities cannot be
determined on the Merger Date, NCS shall indicate the estimated amount due and
owing. The payment of the EXHIBIT "A" liabilities shall be subject to the
provision of paragraph 3.4. The payment of the EXHIBIT "A-1" liabilities will
become the obligation of Telecomm from and after the Merger Date and shall be
paid in the ordinary course of business.
The closing of this transaction is contingent upon Telecomm's review
and acceptance of the liabilities set forth in EXHIBITS "A" AND "A-1", provided
however, that Telecomm's acceptance of said Exhibits shall not in any manner
modify, limit, or invalidate the representations and warranties of NCS and the
Shareholder as contained in the Agreement, including but not limited to the
representations and warranties specifically pertaining to the accuracy of the
liabilities listed in EXHIBITS "A" AND "A-1".
2.1.4 TAX PAYMENTS AND RETURNS. Such Shareholder has filed all tax
reports and returns required to be filed through the date of this Agreement and
has paid all taxes and other related charges (including interest and penalties)
due or claimed to be due from such Shareholder by federal, state, local or
foreign taxing authorities. No taxing authority has audited any portion of such
Shareholder's tax return, and there are no notices of
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audit, pending questions relating to, or claims asserted for, taxes or
assessments received by or made against such Shareholder.
2.1.5 RESTRICTED SHARES. Such Shareholder acknowledges, understands
and agrees
(a) The Telecomm Shares have not been registered with the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Securities Act") and have not been registered under any state securities
law. The Telecomm Shares may not be resold or redistributed without registration
under the Securities Act and any applicable state securities laws, unless an
applicable exemption from such registration is available.
(b) The Telecomm Shares being acquired by such Shareholder under this
Agreement, are being acquired for such Shareholder's own account, for investment
purposes, not for the interest of any other person, firm or entity, and not with
a view to or present intention of reselling or distributing all or any portion
of, or interest in, the Telecomm Shares. In order to assure the forgoing and the
status of the Merger as a tax free reorganization, Telecomm Shares cannot be
sold, assigned, transferred, conveyed, pledged, hypothecated or otherwise
disposed of by any Shareholder without the prior written consent of the Company
for two years after the date the Merger becomes effective.
(c) Such Shareholder does not have any right to compel Telecomm to
register the Telecomm Shares under the Securities Act or any state securities
law and such Shareholder acknowledges that Telecomm has no present intention of
registering the Telecomm Shares.
(d) Such Shareholder has such knowledge and experience in financial
and business matters that he is capable by himself of evaluating the merits and
risks of his investment in the Telecomm Shares and of making an informed
investment decision.
(e) Such Shareholder is aware of the tax consequences of owning
Telecomm Shares and the termination of S corporation status of NCS.
(f) The certificates evidencing the Telecomm Shares shall bear the
following legend:
The shares represented by this stock certificate have not been registered under
any state securities act (the "State Acts") or the Securities Act of 1933, as
amended (the "Securities
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Act"). The shares cannot be sold or otherwise disposed of without either
registration or an exemption from registration. The corporation is under no
obligation to register the shares under the State Acts or the Securities Act.
2.2 JOINT AND SEVERAL REPRESENTATIONS OF THE SHAREHOLDERS AND NCS. Each
Shareholder and NCS, jointly and severally, represents and warrants to Telecomm
as follows:
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2.2.1 ORGANIZATION AND QUALIFICATION; CAPITALIZATION.
(a) NCS is a Wisconsin corporation duly organized, validly existing
and in good standing under the laws of the State of Wisconsin. NCS has the full
corporate power to carry on its business as it is now being conducted.
(b) The authorized capital stock and the number of shares of capital
stock issued and outstanding for NCS is as follows: (i) Authorized Capital Stock
2800; (ii) Issued Shares 1950.
2.2.2 AUTHORITY.
(a) NCS has the full legal right, power and authority to enter into,
execute and deliver this Agreement and to perform fully its obligations
hereunder.
(b) This Agreement has been duly executed and delivered by NCS and is
the valid and binding obligation of NCS enforceable against NCS in accordance
with its terms.
(c) The Board of Directors of NCS and the Shareholders have approved,
and no other corporate proceedings are necessary to authorize, this Agreement
and the consummation of the transactions contemplated by this Agreement.
(d) The execution and delivery of this Agreement and the consummation
by NCS of the transactions contemplated hereby will not:
(i) conflict with, result in a breach of, or constitute or result in a
default under any of the terms, conditions or provisions of the Articles of
Incorporation (or Certificate of Incorporation), Code of Regulations (or
By-Laws) or other governing instruments of NCS;
(ii) require the further approval or consent of any federal, state,
county or local court or other governmental or regulatory body, or the approval
or consent of any other person; or
(iii) conflict with or result in any breach or violation of any of the
terms and conditions of, or constitute a default (with notice, lapse of time or
both) under, or a violation of, any statute, regulation, order, judgment or
decree applicable to NCS or any instrument, contract or other agreement to which
NCS is a party or to which NCS is
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bound or subject, including without limitation the contracts identified in
Sections 2.2.4 and 2.2.5 below.
2.2.3 FINANCIAL STATEMENTS/DIVIDENDS/DISTRIBUTIONS.
(a) The balance sheets of NCS as of December 31, 1994 and 1995 and the
related statements of income and of cash flows for the twelve (12) month period
then ended, previously delivered to Telecomm (collectively, the "1994 and 1995
Financial Statements") accurately and completely present the financial position
of NCS at December 31, 1994 and 1995, and the results of operations and cash
flows for NCS for the years then ended, in accordance with generally accepted
accounting principles consistently applied.
(b) The unaudited balance sheets of NCS as of February 29, 1996, and
the related statements of income and of cash flows for the periods then ended,
previously delivered to Telecomm (the "1996 Financial Statements") fairly
present the financial position of NCS at February 29, 1996 and the results of
operations and cash flow for such entities for the periods then ended, all in
conformity with generally accepted accounting principles consistently applied.
(c) No dividends or other distributions have been made by NCS to their
respective Shareholders since December 31, 1995, except for salaries and
commissions in the ordinary course of business and except for distributions in
April 1996 to the Shareholders for payment of 1995 taxes relating to S
corporation earnings as reflected in the 1995 Financial Statements.
2.2.4 OWNERSHIP OF OPERATING ASSETS. NCS has good and marketable
title to, or holds under lease (the "Operating Leases"), all of its office
equipment, furniture, motor vehicles and other tangible personal property
(collectively, the "Operating Assets") owned or used by it in its business, free
and clear of all restrictions, liens, claims and other encumbrances except as
set forth in EXHIBIT A.
2.2.5 CONTRACTS AND LEASES. EXHIBIT "D" sets forth the contracts and
leases (including office lease) material to the operation of NCS and which have
been previously delivered to Telecomm are valid, binding upon the parties
thereto, in full force and effect and, except as indicated below, have not been
amended or modified. NCS and Shareholders will cooperate in having EXHIBIT "D"
Contracts and Lease assigned to Telecomm if requested by Telecomm. NCS and
Telecomm acknowledge that a separate assignment of the Contracts and Leases may
not be required as a result of the merger of NCS into Telecomm.
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2.2.6 INTELLECTUAL PROPERTY RIGHTS. To the best of the Shareholder's
knowledge NCS owns, or holds adequate licenses to, the intellectual property
used in its business, including, without limitation, trademarks, service marks,
copyrights, patents, and computer software and data bases, free and clear of all
restrictions, liens, claims and other encumbrances, and such use does not and
will not conflict with, infringe on, or otherwise violate any rights of others.
2.2.7 EMPLOYEES: EMPLOYEE BENEFITS. The employee benefit programs set
forth in EXHIBIT B constitute the only employee benefit programs in effect for
NCS prior to the date of this Agreement.
2.2.8 INSURANCE. NCS has in place and in full force and effect, hazard
and liability insurance policies with coverage amounts and deductibles as set
forth in EXHIBIT "E".
2.2.9 PERMITS, LICENSES AND COMPLIANCE WITH LAWS.
(a) NCS maintains in full force and effect, all permits, licenses
and approvals from federal, state, local and foreign governmental and regulatory
bodies required to carry on its business.
(b) NCS is in compliance in all material respects with all federal,
state and local laws, ordinances, codes, regulations, orders, requirements,
standards and procedures which are applicable to its business.
(c) NCS nor any officer, director or agent of NCS has been convicted
of, charged with, or to the knowledge of NCS or the Shareholders, investigated
for a violation of federal or state law related to fraud, theft, embezzlement,
breach of fiduciary responsibility, or financial misconduct; or has been subject
to any order or consent decree of, or criminal or civil fine or penalty imposed
by, any court or governmental agency.
2.2.10 LITIGATION. Except as set forth in both EXHIBIT A and EXHIBIT
C, there are no claims, complaints, suits, actions and judicial, regulatory,
arbitration or governmental actions, proceedings or investigations pending, or
to the knowledge of the Shareholders or NCS threatened, against NCS, or any of
their respective officers, directors or agents. All litigation set forth in
EXHIBIT C when added to the indebtedness set forth in EXHIBIT A should not cause
the EXHIBIT A indebtedness to exceed $250,000.
2.2.11 TAX PAYMENTS AND RETURNS.
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(a) NCS has delivered to Telecomm true and complete copies of its
federal, state and local income tax returns for its tax years ended December 31,
1994 and December 31, 1995. NCS has filed all tax reports and returns required
to be filed by it through the date of this Agreement and has paid all taxes and
other related charges (including interest and penalties) due or claimed to be
due from it by foreign, federal, state or local taxing authorities. No taxing
authority has audited any portion of a tax return relating to any Shareholder or
NCS, and there are no notices of audit, pending questions relating to, or claims
asserted for, taxes or assessments received by or made against any NCS.
(b) Since its inception, NCS has been duly qualified as an S
corporation for federal and state income tax purposes and, in connection
therewith, (i) has not had more than 35 shareholders, (ii) has not had as a
shareholder a person (other than an estate and other than a trust described in
Section 1361(c)(2) of the Internal Revenue Code of 1986, as amended) who is not
an individual, (iii) has not had a nonresident alien as a shareholder, (iv) has
not had more than "one class of stock" (as such term is used in Section 1361 of
the Internal Revenue Code of 1986, as amended), (v) has not been an "ineligible
corporation" (as such term is used in Section 1361 of the Internal Revenue Code
of 1986, as amended), and (vi) has properly filed S corporation elections with
and is approved as an S corporation by the Internal Revenue Service and all
applicable State Departments of Revenue or Taxation.
2.2.12 CORPORATE DOCUMENTS AND MINUTE BOOKS; OFFICERS AND DIRECTORS.
The minutes of corporate proceedings, stock transfer records, Articles of
Incorporation (or Certificate of Incorporation) and Code of Regulations (or
By-Laws) of NCS has been delivered to Telecomm and are correct and complete, and
accurately reflect all actions and proceedings of the shareholders and Board of
Directors of NCS to date.
2.2.13 BROKERS/FEES. Negotiations related to this Agreement and the
transactions contemplated hereby have been carried on by the Shareholders and
NCS, and no brokerage or finders' fees are payable by any Shareholder or NCS to
any other party in connection with this Agreement or the transactions
contemplated hereby.
2.2.14 ADVERSE CHANGES. Since December 31, 1995, NCS has not suffered
any adverse changes in its financial condition, assets, liabilities or business
or any damage, destruction or loss to its assets, whether or not covered by
insurance.
2.2.15 OPERATIONS IN THE ORDINARY COURSE. Since December 31, 1995, NCS
has been operated only in the normal and ordinary course, and has not:
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(a) issued or committed to issue any capital stock or other
ownership interest therein, other than as shown in paragraph 1.2.2.
(b) granted or committed to grant any options, warrants,
convertible securities or other rights to subscribe for, purchase or otherwise
acquire any shares of its capital stock or other ownership interest therein;
(c) entered into any material agreement to make capital
expenditures;
(d) entered into any agreement relating to the borrowing of money
or other contract for indebtedness, or the guarantee of any obligation for the
borrowing of money;
(e) entered into any material real or personal property lease; or
(f) entered into, modified or cancelled any other agreement,
contract or commitment which is not terminable upon thirty (30) days, or less,
notice.
For purposes of this Section 2.2.15, the term "material" means a contract,
agreement or commitment obligating NCS to make an expenditure in excess of Five
Thousand Dollars ($5,000), or having a term in excess of one (1) year.
2.2.16 THIRD PARTY CONSENTS. The Shareholders and NCS have obtained
and delivered to Telecomm the consent or approval of each third party whose
consent or approval is required or deemed necessary by Telecomm for the
consummation of the transactions contemplated by this Agreement.
2.2.17 TRANSACTIONS WITH RELATED PARTIES. Except for the employment of
the Shareholders, and the proposed real estate lease with Peter Olk, the summary
terms of which is set forth in EXHIBIT "D", there are no contracts, leases,
loans, commitments, transactions, arrangements or other understandings, oral or
written, between NCS and any Related Party. For purposes of this Section 2.2.17,
the term "Related Party" means (a) any Shareholder, (b) the spouse, lineal
descendant or other family member of a Shareholder, (c) any corporation,
partnership, trust, limited liability company, or other entity controlled by, or
under common control with a Shareholder, (d) any officer, director or employee
of NCS, and (e) any person who is a member, partner or shareholder in any
relationship or similar form of business association with any person or entity
referred to above.
2.2.18 DISCLOSURE. To the best knowledge of the Shareholders and to
the best knowledge of NCS, no representation or warranty by the Shareholders or
NCS, or any
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document, written statement or certificate furnished to Telecomm pursuant to
this Agreement (including without limitation the 1994 and 1995 Financial
Statements, 1996 Financial Statements, and tax returns), contains any untrue
statement of material fact or omits to state a fact necessary in order to make
the statements contained herein or therein not misleading.
2.2.19 ACCURACY OF EXHIBITS "A" AND "A-1". EXHIBIT "A"
accurately reflects all obligations of NCS which were not incurred in the
"ordinary course of business." For purposes of this representation obligations
owed by NCS whether contingent, fixed, liquidated or unliquidated, including but
not limited to obligations owed to (i) Shareholders on shareholder loans; (ii)
pending or threatened litigation claims; (iii) obligation to repurchase shares
of stock from former shareholders shall be considered obligations of NCS NOT
incurred in the "ordinary course of business." The obligations and amounts set
forth in EXHIBIT "A-1" are true and correct within ten percent (10%) of the
total amount shown and/or estimated.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF TELECOMM
Telecomm represents and warrants to NCS and the Shareholders as follows:
3.1 ORGANIZATION AND GOOD STANDING Telecomm is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Telecomm has full corporate power to carry on its business as it is
now being conducted.
3.2 AUTHORITY. Telecomm has the full legal right, power and authority to
enter into, execute and deliver this Agreement and to perform its obligations
under this Agreement. This Agreement has been duly executed and delivered by
authorized officers Telecomm and is the valid and binding obligation of Telecomm
enforceable in accordance with its terms. The execution and delivery of this
Agreement and the consummation by Telecomm of the transactions contemplated will
not:
(a) conflict with, result in a breach of, or constitute or result in
a default under any of the terms, conditions or provisions of the Certificate of
Incorporation or Articles of Incorporation, By-Laws or Code of Regulations, or
other governing documents of Telecomm;
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(b) require the further approval or consent of any federal, state,
county or local court or other governmental or regulatory body or the approval
or consent of any other person; or
(c) conflict with or result in a breach or violation of any of the
terms and conditions of, or constitute (with notice, lapse of time or both) a
default under or a violation of, any statute, regulation, order, judgment or
decree applicable to Telecomm or any instrument, contract or other agreement to
which Telecomm is a party.
3.3 BROKERS/FEES. Negotiations related to this Agreement and the
transactions contemplated hereby have been carried on by Telecomm and no
brokerage or finders' fees are payable by Telecomm to any other party in
connection with this Agreement or the transactions contemplated hereby.
3.4 PAYMENT OF EXHIBIT "A" INDEBTEDNESS AND ESCROW. Telecomm agrees only
to assume up to Two Hundred Fifty Thousand Dollars ($250,000) of liabilities as
set forth in EXHIBIT A. Should the EXHIBIT "A" liabilities be settled by the
Shareholders for less than Two Hundred Thousand Dollars ($200,000) the
Shareholders and Perillo shall be entitled to receive the difference between Two
Hundred Thousand Dollars ($200,000) and the amount required to be paid by
Telecomm as additional consideration under this Agreement. The amount between
Two Hundred Thousand Dollars ($200,000) and the Two Hundred Fifty Thousand
Dollars ($250,000) that was not required to be paid of Telecomm shall be
considered as a reduction in the acquisition cost and shall be retained by
Telecomm. All EXHIBIT "A" liabilities in excess of Two Hundred Fifty Thousand
Dollars ($250,000) and/or liabilities that were excluded from EXHIBIT "A", were
not incurred in the ordinary course of business, and should have been scheduled
as part of the EXHIBIT "A" liabilities shall be the sole and absolute
responsibility of the Shareholders and shall be paid by the Shareholders within
thirty (30) days after Telecomm has become aware of any such liability and/or
claim. The Two Hundred Fifty Thousand Dollars ($250,000) to be paid by Telecomm
on the Merger date shall be held in a separate escrow account which account
shall require the signature of both Peter Olk, and one designated representative
of Telecomm. Each check paid will require both their signatures.
ARTICLE 4
COVENANTS OF THE SHAREHOLDERS AND NCS
4.1 INSURANCE COVERAGE. The Shareholders and NCS will take all action
necessary to maintain, in the name and for the benefit of Telecomm, all
insurance policies of NCS.
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4.2 BANK ACCOUNTS. The Shareholders and NCS shall take all action necessary
to maintain the bank accounts, lock boxes and other depositaries of NCS and
cause them to be identified under Telecomm's federal Employer Identification
Number.
ARTICLE 5
MISCELLANEOUS
5.1 AMENDMENT/MODIFICATION. This Agreement may be amended or modified only
in a writing signed by all of the parties.
5.2 FURTHER ASSURANCES. Each party shall execute and deliver such
instruments and take such further actions as shall be reasonably requested by
any other party, in order to consummate the transactions, agreements and
covenants contemplated by this Agreement, including, without limitations the
transfer to Telecomm of title to all of the Operating Assets.
5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties of the parties shall survive the execution, delivery and consummation
of this Agreement.
5.4 INDEMNIFICATION AND STOCK PLEDGE.
5.4.1 INDEMNIFICATION BY THE SHAREHOLDERS. The Shareholders shall
jointly and severally indemnify Telecomm against losses (including reasonable
attorneys' and other professional fees) (the "Losses") suffered or incurred by
Telecomm resulting from or arising out of (i) the inaccuracy or breach of any
representations, warranties or covenants of the Shareholders or NCS contained in
this Agreement or in any schedule or certificate delivered to Telecomm pursuant
to this Agreement, (ii) any claims made or which arise out of the operations or
activities of NCS prior to the Merger Date, whether or not asserted, including
without limitation tax claims, employee or independent contractor claims,
customer claims and environmental claims, and (iii) any and all actions, suits,
proceedings, demands, assessments, penalties, fines, judgments, costs and legal
and other expenses incident to the foregoing, (iv) the EXHIBIT "A" liabilities
exceeding Two Hundred Fifty Thousand Dollars ($250,000), (v) the EXHIBIT "A-1"
list of liabilities is understated by more than ten percent (10%). As security
for the indemnification being given by the Shareholders, the Shareholders agree
to pledge their Telecomm stock in favor of Telecomm for a period of one (1) year
from the Merger Date. The form of the stock pledge and the assignment of the
Telecomm stock is set forth in EXHIBIT D. The Telecomm stock subject to the
stock pledge shall be held by Telecomm for the one (1) year period following the
Merger Date. The redelivery of the Telecomm stock after the one (1) year period
shall in no manner limit the obligations of the Shareholders under
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5.4.1. Notwithstanding anything contained herein to the contrary, the
Shareholders' obligations to indemnify, as set forth in this paragraph 5.4.1,
which arise out of or relate to claims made or which arise out of the operations
or activities of NCS prior to the Merger Date and as set forth in subparagraph
(ii), above, shall be limited to claims of which the Shareholders and Telecomm
have actual notice prior to the first anniversary of this Agreement.
5.4.2 INDEMNIFICATION BY TELECOMM. Telecomm shall indemnify the
Shareholders and NCS against Losses suffered or incurred by the Shareholders or
NCS resulting from or arising out of (i) the inaccuracy or breach of any
representations, warranties or covenants of Telecomm contained in this
Agreement, and (ii) any and all actions, suits, proceedings, demands,
assessments, penalties, fines, judgments, costs and legal and other expenses
incident to the foregoing.
5.4.3 THIRD PARTY CLAIMS.
(a) If any claim is made or any lawsuit or action is brought
against a party or parties ("Indemnified Parties") for which indemnification
under this Agreement is sought, written notice thereof shall be given to the
party or parties from whom indemnification is sought ("Indemnifying Parties"),
as promptly as practicable; PROVIDED. HOWEVER, that the failure of the
Indemnified Parties to so notify the Indemnifying Parties shall not affect
rights to indemnification hereunder except to the extent the Indemnifying
Parties demonstrate actual damages caused by such failure.
(b) Notwithstanding such notice, the Indemnified Parties shall
have the right to take control of the investigation, litigation, defense and
settlement of any such claim, lawsuit or action and any appeal arising from such
lawsuit or act on, and to employ and engage attorneys of their choice to handle
and defend the same. All costs and expenses (including, without limitation,
attorneys' and other professional fees) incurred by the Indemnified Parties in
connection with, arising from or incident to the investigation, trial and
defense of such lawsuit or action and any appeal arising from such claim,
lawsuit or action shall be borne by the Indemnifying Parties. The Indemnifying
Parties shall cooperate in all reasonable respects, at their cost, risk and
expense, with the Indemnified Parties and their
attorneys in the investigation, trial and defense of such claim, lawsuit or
action and any appeal arising from such claim, lawsuit or action.
5.5 ARBITRATION.
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5.5.1 Except for actions for injunctive relief, any dispute arising
between the parties hereto shall be resolved by arbitration in Cleveland, Ohio
in accordance with the Rules of the American Arbitration Association, and the
award of the arbitrator(s) shall be final and binding upon the parties. In the
event a demand for arbitration is filed pursuant hereto, the parties shall have
the same rights to discovery under the Ohio Rules of Civil Procedure as if the
dispute had been filed as an original action in an Ohio court of original
jurisdiction, and the Cuyahoga County (Ohio) Court of Common Pleas, General
Division, shall have jurisdiction and shall be authorized to enforce said rights
as if the entire dispute were pending before said court. All parties consent,
agree and submit to personal jurisdiction and venue in Cuyahoga County, Ohio.
5.5.2 All expenses of the arbitration will be borne as determined by
the arbitrators, and if not so determined, then equally by the parties.
5.6 NONDISCLOSURE/PUBLICITY. No press release or governmental notification,
report or other filing by any Shareholder or NCS shall be made without
Telecomm's approval of the content thereof. Telecomm and its affiliates may
issue such press releases and file such governmental filings as necessary, in
its judgement, due its status of as a publicly held corporation.
5.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
5.8 NOTICES. notices pursuant to this Agreement will be deemed to have been
given when mailed by certified mail return receipt requested, or when receipt of
an overnight courier package, telex or facsimile has been acknowledged in
writing, to the following addresses, or as set forth in any notice of change of
address previously given in writing by the addressee to the addressor:
To Telecomm: 9310 Progress Parkway
Mentor, Ohio 44060
Attention: Michael J. Toth, Chairman
Fax: (216) 639-6660
With a Copy to: Dworken & Bernstein Co., L.P.A.
153 East Erie Street
Painesville, Ohio 44077
Attention: Melvyn E. Resnick
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Fax: (216) 352-3469
To the Shareholders and NCS: NCS
1361 Glory Road
P.O. Box 10565
Green Bay, WI 54307
Attention: Peter Olk
Peter Olk
1361 Glory Road
P.O. Box 10565
Green Bay, WI 54307
17
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Thomas Raasch
1701 McIntosh Drive
Appleton, Wisconsin 54914
With a copy to: Mr. David Timm, Esquire
Metzler & Hager
222 Cherry Street
Green Bay, Wisconsin 54301-4223
5.9 NO ASSIGNMENT. This Agreement may not be assigned by the Shareholders
or NCS, by operation of law or otherwise, and any attempt to do so shall be null
and void. This Agreement may be assigned by Telecomm to an affiliated entity or
to a successor of substantially the entire business of Telecomm.
5.10 HEADINGS/RECITALS. The section headings contained in this Agreement
are for convenience only and are not a part of this Agreement. The recitals to
this Agreement constitute an integral part of this Agreement and are
incorporated herein by reference.
5.11 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one agreement. The signature of any party to any counterpart, or facsimile
thereof, may be appended to any other counterpart and when so appended shall
constitute an original.
5.12 COSTS AND EXPENSES. The Shareholders shall bear all costs and expenses
incurred by the Shareholders and NCS, and Telecomm shall bear all costs and
expense incurred by Telecomm, in connection with or arising out of the
negotiation and execution of this Agreement.
5.13 ENTIRE AGREEMENT. This Agreement, together with its Exhibits and
Schedules, and the other agreements executed in connection herewith (including,
without limitation the Employment Agreements and Non-Competition Agreements to
which Telecomm and the Shareholders are parties) constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes all other agreements and understandings between or among the parties,
whether oral or written, with respect to the subject matter hereof, including
without limitation the Letter of Intent by and between Telecomm and NCS dated
October 25, 1996.
5.14 WAIVER. No waiver of any breach of any provision of this Agreement
shall be deemed a waiver of any other subsequent breach, and the failure of a
party to enforce at
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any time any provision hereof shall not be deemed a waiver of any right of such
party to subsequently enforce such provision or any other provision hereof.
5.15 JURISDICTION/VENUE. Subject to Section 5.5.1, jurisdiction and venue
for any action or claim arising hereunder shall lie in the Cuyahoga County
(Ohio) Court of Common Pleas, the United States District Court for the Northern
District of Ohio, or other court having appropriate jurisdiction over such
action or claim, and each party irrevocably consents to the personal and subject
matter jurisdiction and venue of said courts.
5.16 SEVERABILITY. The provisions of this Agreement are distinct and
severable and if any provision is held to be invalid or unenforceable, such
invalidity or unenforceability will not affect the validity or enforceability of
any other provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
NORTHEASTERN COMMUNICATIONS
SYSTEMS, INC., A WISCONSIN CORPORATION
By:
- --------------- ------------------------------------
Peter Olk, President
- --------------- ------------------------------------
Peter Olk, Shareholder
- --------------- ------------------------------------
Thomas Raasch, Shareholder
- ---------------
TELECOMM INDUSTRIES CORP.
A DELAWARE CORPORATION
19
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By:
- --------------- ------------------------------------
Andrew Gorogiani, President
- ---------------
20
<PAGE>
EXHIBIT "A"
1. Bradley B. Horne $ 15,534.94 ($3.42 per diem
after 12/1/96
2. Timm Bacher $ 26,160.40 ($5.65 per diem
after 12/1/96)
3. Steven K. VanDyke $ 24,894.95 ($5.45 per diem
after 12/1/96)
4 Foth & VanDyke Profit
Sharing Trust $ 37,623.04 ($8.24 per diem
after 1/2/96)
5. Jacquelyn LaCombe
- Paid with loan proceeds.
Lender: Bank One Green Bay $ 50,000.00
6. Kriss Lardinois
- Paid with loan proceeds.
Lender: Bank One Green Bay $ 50,000.00
7. Ameritech related
investigation (estimate of
potential damages $ 32,000.00
8. Sandra Perillo $ 42,180.00
------------
$278,393.33
------------
------------
Telecomm's obligation is only to pay $250,000 of the above EXHIBIT "A" listing.
All funds in excess of $250,000 required to settle or pay any of the above
claims shall be paid by the Shareholders of NCS as that term is defined in the
Merger Agreement.
<PAGE>
EXHIBIT "A-1"
NCS
ACCOUNTS PAYABLE
31 - DEC - 96
DESCRIPTION DESCRIPTION
- --------------------------------------------------------------------------------
AMERITECH-C50-0457 271.84 HANEFELD BROS 17.88
AMERITECH-C50-0463 271.84 MCMAR INC 15.74
AMERITECH-224-8772 282.17 METZLER & HAGER 2,174.68
AMERITECH-339-8000 678.21 NEC AMERICA INC 44,995.69
AMERITECH-739-1234 1,970.19 NEC LEASING 4,535.00
AMERITECH-739-1235 293.77 NELSON CHIROPRACTIC 129.02
AMERITECH-831-7787 380.52 NEWCAP 700.00
AMERITECH-885-6005 174.48 NEW OFFICE PLUS 108.62
AMERITECH-983-7787 353.16 NOVO TRANSPORTATION 17.34
AMERITECH-Z01-8613 (178.83) OUTAGAMIE SERVICES 436.34
AMERITECH-PAGING 113.40 PITNEY BOWES 100.80
ASHWAUBENON WATER 72.89 RAYS TIRE 11.55
BAY TOWEL 208.88 RESOLUTE SYSTEMS 362.50
BE'S COFFEE SERVICE 117.40 ST LOUIS POST 159.50
BRENNAN BUICK 3,500.00 SPIC AND SPAN 79.20
CELLCOM 37.43S PRINT 14,994.28
CITGO 230.93 SWAN CLUB 1,400.00
COMSAL 51.00 TELEBROKERS 383.92
COYOTE ENTERPRISES 95.25 TRAVEL SOURCE 204.00
ESTECH SYSTEMS INC. 16,344.00 TULLY SYSTEM 500.00
FOX VALLEY TIPS 40.00 UPS 1,470.38
G&K SERVICES-BD-MILW 110.00 WAUBE LUBE 15.70
G&K SERVICES-GB-APP 159.46 WILLIAMS LANDSCAPE 40.00
GODFREY & KAHN, SC 6,467.12 WISCONSIN ELECTRIC 576.85
GRAYBAR 5,020.52 WI PUBLIC SERVICE 1,574.35
GREEN BAY PRESS GAZETTE 83.81 WISCONSIN PHYSICIANS 375.00
37,149.44 75,378.34
112,527.78
Approved by Telecomm Industries Corp. this 3rd day of January, 1997.
____________________________________
Michael J. Toth, Chairman
Telecomm Industries Corp.
<PAGE>
ADDENDUM TO MERGER AGREEMENT
This Addendum Agreement, entered into by and among Peter Olk and Thomas
Raasch (hereinafter collectively referred to as the "Shareholders" and
occasionally individually, as "Shareholder"), Northeastern Communications
Systems, Inc., a Wisconsin corporation ("NCS") and Telecomm Industries Corp., a
Delaware corporation ("Telecomm").
WITNESSETH:
WHEREAS, the parties hereto entered into a Merger Agreement effective
January 1, 1997, whereby NCS has agreed to merge into Telecomm (the "Merger");
and
WHEREAS, Ms. Sandra Perillo ("Perillo") has exercised her Dissenter's
rights pursuant to Wisconsin Statutes Section 180.130, et seq., and fair value
for Perillo's common stock of NCS has been paid to her; and
WHEREAS, as a result of Perillo's exercise of her Dissenter's rights, the
consideration to be paid by Telecomm to NCS and the Shareholders in
consideration of NCS's merger with Telecomm can now be specifically determined;
and
WHEREAS, the parties hereto desire to confirm the allocation of the cash
consideration and the conversion of NCS shares related to the Merger and set
forth said allocations in this Addendum Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto agree as follows:
1. CASH CONSIDERATION. Pursuant to the Merger Agreement, the
Shareholders of NCS shall receive $400,000.00 in cash, or other readily
available funds, at closing, to be allocated as follows:
Shareholder Percentage Cash
----------- ---------- ----
Peter Olk 94.6% $378,400.00
Thomas Raasch 5.4% $ 21,600.00
------ -----------
100.0% $400,000.00
2. CONVERSION OF NCS SHARES. Notwithstanding anything contained in the
Merger Agreement at paragraph 1.2.2 to the contrary, the NCS Shares shall be
exchanged as a result of the Merger for the Telecomm Shares. Telecomm shall
deliver to each Shareholder at Closing and/or within a reasonable time
thereafter, a share certificate evidencing ownership of Telecomm Shares, as set
forth in the table below, upon surrender to Telecomm of the share certificates
or certificates representing such Shareholder's ownership of NCS Shares duly
endorsed for transfer or accompanied by properly executed stock powers.
<PAGE>
Shares Owned Percentage
Shareholder in NCS of Ownership
----------- ------------ ------------
Peter Olk 1,750 94.6%
Thomas Raasch 100 5.4%
----- -----
1,850 100.0%
Telecomm Shares
--------------
Peter Olk 378,400
Thomas Raasch 21,600
-------
400,000
3. Except as otherwise set forth herein, all other terms and conditions
of the Merger Agreement shall remain in full force and effect unchanged by this
Addendum.
Dated this 3rd day of January, 1997.
NORTHEASTERN COMMUNICATIONS
SYSTEMS, INC.
By:__________________________________
Peter J. Olk, President
___________________________________
Peter J. Olk, Shareholder
____________________________________
Thomas Raasch, Shareholder
TELECOMM INDUSTRIES CORP.
By:___________________________________
Michael J. Toth, Chairman
2
